Choosing The Right Broker

conflict of interest?

Full-service brokers are finally dealing with the inherent conflict of interest: brokers who are paid commission have a financial incentive to push unnecessary trades. The new method for broker compensation comes through an annual fee based on a percentage of the assets under management. This gives brokers a stronger incentive to build wealth rather than just make unnecessary trades.

choosing your broker

Before deciding which broker to use, I recommend some in-depth research. Not every broker offers the same services. Start by interviewing multiple brokers at different firms to assess their creative investment strategies and get a feel for their expertise.

Be aware of brokers who try to steer you towards mutual funds when they see that you have a small account. These are brokers with limited accessibility who only make time for their top clients. A good broker will actively help you with your investments and should be available to help all his clients regardless of the size of the portfolio. Ask the broker what kind of commission schedule he or she is on. The best schedule is one that rewards the broker in terms of his stock pick performance and not in the number of trades his clients make.

Don't be fooled by an aggressive sales pitch. Before making a final decision, I propose that you either get recommendations from friends that use the same brokerage firm, or ask the broker himself for references. Be aware that the broker's references might be biased, as he will give you his best clients as references. Finally, don't forget to read the fine print — all of it. You don't want to be caught with surprise annual fees or restrictions.

Full-service brokerage firms are finally realizing that they can't offer the same service to online traders as their regular trade-by-phone clients. These Internet savvy traders expect low commission, rapid execution and a human voice to help filter the financial information available on the web. Unless you're a seasoned trader, I recommend that you rid yourself of those jittery sleepless nights by getting the help of a convenient and experienced full-service broker who will help you get through the current rocky markets.